KARACHI: In the eight months of the current fiscal year, Pakistan’s public debt increased by Rs1.505 trillion or 4.28 per cent. This is largely due to an increase in government borrowing to bridge the budget deficit gap.
In February 2021, the public debt stood at Rs36.612tr, compared to Rs33.417tr at the end of February last year. In June 2020, it stood at Rs35.107tr, according to the State Bank of Pakistan (SBP) data released on Monday.
It rose big time on the government’s domestic borrowing side, rising 6.43 per cent to Rs24.780tr, while the government foreign debt increased only 0.06 per cent to Rs11.832tr at the end of February 2021.
As far as domestic debt is concerned, the long-term debt rose 9.88 per cent to Rs19.454tr, however, short-term debt fell 4.51 per cent to Rs5.326tr. The government finances its budget expenditures through tax collection, profit earned from state-owned enterprises, and borrowing from external sources.
Banks also help in fulfilling government domestic financing requirements. In the period from April-June 2021, the experts are predicting that government will generate Rs4.7tr by borrowing from Market Treasury Bills, and Rs825bn from Pakistan Investment Bonds, the auction calendar issued by the SBP on Monday showed.
The government’s debt strategy indicates that it wants to borrow more from long tenor papers, especially by focusing on floating rate PIBs, and Sukuk to meet its spending requirements. This would help reduce the cost of borrowing of the government in times to come.
In the current fiscal year, the government raised Rs1.490tr net financing in the first half (July-December). It raised Rs450bn from privatisation, external grants and borrowings.
The amount gained through domestic borrowing was Rs1.040tr in July-December FY2021. The budget deficit increased to Rs1.4tr in July-December of the current fiscal year which was 2.5 per cent of the GDP.
The World Bank in its annual flagship South Asia Economic Focus report said that Pakistan’s exposure to debt-related shocks would remain elevated in the medium-term, as would Pakistan’s exposure to debt-related shocks.
As fiscal consolidation efforts are expected to resume, the deficit is projected to remain elevated at 8.3% of GDP this fiscal year partly due to the settlement of arrears in the power sector, it said.
For the next fiscal year, the WB has projected the budget deficit at 7.7 per cent of the GDP. The lender has projected the debt at 93.9 per cent of the GDP or Rs43tr, forecasting it to increase to 94.4 per cent in the next fiscal year. The public debt was 88 per cent of the GDP in the last fiscal year.
However, the ministry of finance in its monthly economic update and outlook said the fiscal performance from July-January FY2021 shows that the fiscal consolidation policy helped in preserving fiscal discipline, increasing revenues, and controlling expenditures.
“However, the increase in COVID-19 infection and related containment measures may pose certain challenges; especially the expenditure side may come under pressure.”
The government’s decreased demand for external funding amid a surplus in the current account, revaluation gains due to appreciation of the rupee against the dollar, the availability of multilateral funds and relief on principal payments by G-20 countries under the Debt Service Suspension Initiative have contributed to the accumulation of foreign debt.